Why Red Hat Inc (RHT) Is (And Shouldn’t Be) Overlooked

RHT stock looks like it could be an underloved sleeper hit

Investors just can’t seem to make up their minds about how to play Red Hat Inc (NYSE:RHT), and that indecisiveness has left the stock in a strange funk, fishtailing back and forth in a $10 range going back almost six months.

Here’s why the action doesn’t make much sense to me: Red Hat’s earnings reports have been solid, 90% of Fortune 500 companies utilize its software and management’s predictions for the future have consistently improved.

And yet Wall Street still hasn’t priced in this stock’s huge potential.

Why Red Hat Inc (RHT) Is (And Shouldn’t Be) Overlooked

Even after a big spike following its second-quarter earnings report, the stock drifted listlessly back to where it hung during the summer.

RHT Stock May Be a Sleeper

Anyone familiar with my investing strategy knows my favorite stocks to look for are the true game changers. RHT stock would certainly qualify, as it is one of the strongest pure plays on cloud computing software and Big Data, two fields expected to explode in the coming years.

Right now, RHT is all about management’s ability to take what’s already a $13 billion-plus company to the next level by staking out territory in new computing paradigms. That’s why Red Hat is focusing on the cloud, building up into a universe of applications, peripheral services and mobile computing, where the apps need to serve data as securely and reliably as possible, even at a massive scale.

Its most popular software is geared toward Linux, a computer operating system (just like Microsoft Corporation‘s (NASDAQ:MSFT) Windows or Apple Inc.‘s (NASDAQ:AAPL) Mac OS X) that manages hardware and software resources and lets the user essentially communicate with the computer without speaking the technical language. Linux has become universal in corporate IT departments over the years, replacing similarly structured Unix.

As its innovations have grown, Red Hat has become a leading provider of Linux-based enterprise solutions.

During management’s last conference call, an interesting point came up that RHT stock is benefiting from growth in public cloud environments intertwined with other big companies — like Amazon.com, Inc.‘s (NASDAQ:AMZN) Web Services and Microsoft’s Azure — as customers using those services are also building their private cloud infrastructure with Linux.

Finally, here’s why RHT will likely be a sleeper hit: management wants to double the company’s revenue in the next five years. That’s enormous growth, and it’s not really built into Wall Street’s models yet. At best, analysts are looking for half that top-line expansion between now and the end of 2021.

Can management execute their goals? They seem to think they can. If they do, this company will leap up to the top of investors’ “must-buy” lists very quickly.

Hilary Kramer is the editor of GameChangersBreakout Stocks Under $10High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.

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